Made in July a statement about the risks of excessive strengthening of the ruble, which market participants took as a signal of the authorities ‘ intention to restrain the strengthening of the national currency, was not an attempt to influence the Central Bank, said President Vladimir Putin in an interview with Bloomberg.
According to him, the exchange rate should correspond to the level of economic development. “I keep contact with the Board and the Chairman of the Board of the Central Bank, but I never give them directives. And if I say that the ruble is too strong, I’m not saying that the position of the Central Bank is wrong,” Putin told the Agency.
In mid-July the President at the meeting with Prime Minister Dmitry Medvedev drew attention to the risks associated with the growth of the ruble, and invited the Prime Minister to consider further measures in this regard. Shortly before this, in early July, experts of Bloomberg called the strengthening of the ruble is a hindrance to the growth of the Russian economy: in their view, the strong ruble has a negative impact on the financial performance of Russian companies.
Shortly after Putin’s statement on “perioralna” ruble pointed assistant to the President Andrei Belousov, explaining that this trend is “working in the negative”: it reduces revenues and increases the budget problems, reduces the competitiveness of Russian industry and agriculture, devaluing the task of import substitution, contributes to the trend of slowing export growth. Then he said that for the correction of the ruble may be used a number of tools, the choice of which is behind of the Central Bank and the government.
Putin’s statement had a marked impact on the currency market: evening of 19 July, the dollar and the Euro has risen in price by 50 kopecks. the next day the press Secretary of the President Dmitry Peskov said that the strengthening of the ruble, although it has positive aspects, requires “fine tuning that you need to think in advance and implement. The Bank then stated that he did not intend to influence the ruble and abandon a floating exchange rate, to which he moved in late 2014.
Day 2 of September the Moscow stock exchange the dollar was worth RUB 65,8
Putin’s words about the fact that authorities, speaking about the excessive growth of the ruble, not trying to influence Central Bank, a positive signal for the market as a situation where someone in addition to the Central Bank tries to influence the exchange rate or to shift it in one direction or another creates an element of uncertainty and may contribute to volatility and uncertainty in General, the chief economist at the Eurasian development Bank Yaroslav Lissovolik. “When the market has an understanding of how and what factors depend on the exchange rate, it reduces risks and, to some extent, gives the opportunity to better predict the situation from the point of view of those factors that affect the rate,” he said. According to him, the explanations of the President are also important for understanding what a Central Bank is independent in conducting monetary policy. It is also a factor that suggests the possibility of the Central Bank to focus on the inflation component (inflation targeting). “This increases the possibility of achieving the inflation target, so as to achieve the necessary independence of the Central Bank in conducting monetary policy, and the rejection of attempts to reach any guidance on exchange rate,” he said.
Putin’s statement will not have a major impact on the movement of the ruble, says chief economist on Russia and CIS Dmitry Field of ING. “For the ruble, the Central Bank is responsible. Despite the fact that the government may have their own views on the course while no active intervention policy of the Central Bank occurs. The President is still leaning towards the position that the Central Bank has the independence and he makes the decisions. And as time has shown, these decisions were more likely to be correct, at least from the point of view of course,” he said.
In early August the Ministry of economic development predicted that in the second half of the year the ruble will continue to strengthen due to the global market and enhance the investment attractiveness of the national currency. The MAYOR predicts the average annual rate of 67.2 rubles per dollar.
Amid global political risks, such as the situation in Turkey and the UK out of the EU, and ultra-low bond yields in developed countries, investors have begun to invest in more risky and profitable assets, including the ruble. In mid-July, analysts at Credit Suisse called the ruble, “the most attractive currency in developing countries” at current oil prices (around $47 per barrel).
The ruble will continue to float
Putin said that the floating exchange rate of the ruble will continue in the long term. “With regard to the relatively weak ruble, of course, to take advantage of. We believe that these are Russian manufacturers, and work with us overseas. We also consider as their producers. And we treat you that way,” he said at a meeting with foreign investors in Vladivostok [quoted in Reuters].
However, according to Putin, Russia should focus not on the current exchange rate difference, and the fundamentals of its economy. “Because today we have a floating exchange rate. There are big pluses… there are certain difficulties. But we solution is accepted, and you should know that these decisions have been made for a long time” — quoted by his Agency.
According to the President, will remain and the free movement of capital. He confirmed that in 2015 and 2014 was proposed to administratively restrict the movement of capital flows, but stressed that this will not happen.
“Yes, we understand that there is such an administrative way of limiting the export of capital, including limiting its movement, but in the medium term, not to mention more distant, we understand that it will be bad, so we don’t do that”, — he explained his position.
According to Yaroslav Lisovolik from the Eurasian development Bank statement on the preservation of the floating exchange rate and capital transactions will have a positive impact on the mood of the market: reduce the risk, particularly for portfolio investors and for those who operates in the currency market.